MCC’s Director of Policy Elisabeth Saftiuk provides a review of Deputy Prime Minister and Minister of Finance Chrystia Freeland’s updated accounting of federal finances and the federal government’s economic outlook for the coming months, as presented on December 14 in Ottawa.
The Economic and Fiscal Update offered a broad spending vision and committed billions of dollars in new spending to help Canadians wade through the ongoing COVID-19 pandemic. New spending includes $4.5 billion to combat the Omicron variant, $2 billion for the Public Health Agency of Canada to procure COVID-19 therapeutics, $1.7 billion to help provinces and territories acquire and administer 180 million rapid testing kits, and $7.3 billion to procure vaccine boosters.
Major spending commitments made during the recent federal election campaign, including housing supports, health transfer increases to provinces and territories, and climate change initiatives have been delayed until the spring budget.
According to the fiscal update, the government ended the last fiscal year with a $327 billion deficit, down from the $354 billion it was projecting. It also is forecasting to end the current fiscal year $144.5 billion in the red, down roughly $10 billion from the $154.7 billion projected last year. The Government also renewed the Bank of Canada’s agreement on Canada’s monetary policy framework until 2026, which included renewing an inflation target of between 1 to 3 per cent with a target of 2 per cent. The Government expects the economy to grow by 4.6 per cent this year.
- The Government has extended the Canada Recovery Hiring Program. The intent of this program is to encourage employers to hire back workers and increase workers’ hours and wages. On November 24, 2021, the government introduced the necessary legislation to extend the Canada Recovery Hiring Program until May 7, 2022, for eligible employers with current revenue losses above 10 per cent, and to increase the subsidy rate to 50 per cent.
- The Government is targeting supports for businesses hit hardest by the pandemic:
- The Tourism and Hospitality Recovery Program provides support through wage and rent subsidies to organizations in the tourism and hospitality sectors such as hotels, tour operators, travel agencies, restaurants and organizations that plan and host festivals or live performances, with a subsidy rate of up to 75 per cent.
- The Hardest-Hit Business Recovery Program provides support through wage and rent subsidies to organizations that have faced deep losses, with a subsidy rate of up to 50 per cent.
- The Local Lockdown Program provides organizations that face new local COVID-19-related lockdowns with up to the maximum amount available through the wage and rent subsidy programs.
- The Government has committed to relieving supply chain congestion and bottlenecks. In 2021-22, the government will launch a new, targeted call for proposals under the National Trade Corridors Fund to assist Canadian ports with the acquisition of cargo storage capacity and other measures to relieve supply chain congestion. The Fund will dedicate up to $50 million to support eligible priority projects. Further details on the targeted call for proposals will be announced in the coming weeks.
- The Government introduced a new 25 per cent tax credit to help business owners offset the cost of investing in new ventilation and air filtration equipment. Another $110 million has been allocated to provinces, territories, and First Nations communities for ventilation-related improvement projects in schools, in addition to $70 million over three years for ventilation projects in hospitals, libraries, and community centres.
- The Government announced plans to allocate $40 billion to compensate First Nations and to reform foster care.
Other funding highlights include:
- $30 million over three years to adapt public spaces to facilitate social distancing and outdoor gatherings.
- $742.4 million in one-time payments to help 200,000 low-income seniors who received emergency aid in 2020 recoup drops in their GIS payments.
- $67.9 million to help students with debt related to improperly claiming the CERB instead of the Canada Emergency Student Benefit (CESB).
- $385 million over two years to extend the home office expenses tax deduction and increase the temporary flat rate to $500 a year.
- $62 million next year to establish a new Canada Performing Arts Workers Resilience Fund to support artists who make a living through live performances.
- $101 million to extend the Highly Affected Sectors Credit Availability Program to March 31, 2022.
- $85 million next year to speed up the processing of permanent resident and temporary resident applications.
- $5 billion to help British Columbia rebuild after the devastating flooding.
Canadian Chamber of Commerce Perspective
The Canadian Chamber of Commerce’s President and CEO, Perrin Beatty, issued the following statement in response to the Fall Economic Statement.
“Today’s Fall Economic Statement was the right time for the government to lay out a blueprint for how we transition our economy from recovery into strong and sustainable economic growth that will attract investment. Unfortunately, the government has decided to wait until Budget 2022.
Although the Canadian economy as a whole may now be above its pre-pandemic employment levels, significant challenges remain: more than a million job vacancies in economy; one-third of businesses reporting labour shortages; over forty percent reporting rising input costs as a challenge; and now the threat of a new COVID variant.
We welcomed the following measures from the Fall Economic Statement:
- Funding for rapid test kits to support distribution by provincial and territorial governments for school and workplace testing.
- Introduction of a tax credit for small businesses to support ventilation improvements.
- Extension of the home office expense deduction.
The Canadian Chamber welcomes the trajectory of decreasing deficit-to-GDP ratios and urges the government to adhere to their projections to get us below pre-pandemic deficit-to-GDP as quickly as possible to enable us to eventually create a viable pathway towards balanced budgets. Without a clear path to sustainable public finances, businesses face the risk of looming tax increases, especially given long-term issues that will place demands on public finances such as the energy transition. Additionally, any government spending needs to be targeted in areas that will deliver the greatest economic impact for every dollar spent.
Within today’s fiscal update, the Canadian Chamber is concerned about the following elements:
- The lack of a clear fiscal anchor and a plan to bring Canada’s finances back into balance.
- The continued plan to unilaterally implement a Digital Services Tax that risks provoking retaliatory measures from the United States.
- The scarcity of ambitious measures to address supply chain challenges facing businesses across the economy.
- The absence of initiatives to come to grips with cyber security challenges facing businesses and address the infrastructure deficit.
- The continued absence of a long overdue review of Canada’s tax system.
Despite constrained public finances, there are targeted policy measures that the government can implement that will support economic growth without program spending. These measures include regulatory reform, dismantling interprovincial barriers, modernizing Canada’s privacy legislation and opening new markets for exporters.
We cannot afford to wait until we have emerged from COVID before tackling our core challenges that will inhibit long-term economic growth. The Fall Economic Statement unfortunately projects slipping back below 2% real GDP growth after the post-pandemic bounce back. We urge the government to make these measures a priority and to table an early budget after Parliament resumes in the New Year.”
- Economic and Fiscal Update 2021: https://www.budget.gc.ca/efu-meb/2021/report-rapport/EFU-MEB-2021-EN.pdf
- Canadian Chamber of Commerce’s Reaction to the Economic and Fiscal Update: https://chamber.ca/news/still-waiting-for-governments-economic-growth-plan-canadian-chamber-of-commerce/
- Joint Statement of the Government of Canada and the Bank of Canada on the renewal of the Monetary Policy Framework: https://www.bankofcanada.ca/2021/12/joint-statement-of-the-government-of-canada-and-the-bank-of-canada-on-the-renewal-of-the-monetary-policy-framework/